Lawsuit: EMC not repaying its members - Former, current customers say nonprofit has withheld millions
by Jon Gillooly
March 18, 2013 11:48 PM | 11168 views | 27 27 comments | 21 21 recommendations | email to a friend | print
Dwight Brown
Dwight Brown
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A class-action lawsuit alleging that Marietta-based Cobb Electric Membership Corp. has withheld millions of dollars in credits from its customers is making its way slowly through the courts.

Bringing the complaints are two groups of former and current customers of Cobb EMC, a nonprofit owned by its 175,000 customers, also referred to as members.

At the end of each year, the EMC places its excess revenue in a capital account where it is assigned to the members based on how much electricity they use. The goal is to refund the members this money when Cobb EMC is in the financial position to do so, said Robert Steele, the company’s chief financial officer.



Repayment failure



The complaint is that Cobb EMC failed to repay its members what they were owed.

“Instead of using current year profits to repay former and long-term members of a first-in first-out (FIFO) basis, defendant uses at least a portion of its current-year margins to make rebates to current customers, thereby preferring its current members over former members,” attorneys for the former EMC customers write.

Until the lawsuit was filed in 2010, the last time Cobb EMC refunded capital credits to its members was in 1976, when it returned $500,000, Steele said.

Plaintiffs’ attorneys Samuel Pierce Jr. and Charles Gabriel of Pierce, Gabriel & Parker write in their complaint that as of Dec. 31, 2009, capital credit accounts held by current members reflect allocations totaling $182.5 million, while accounts held by former members total $134.5 million.

“A cooperative is by definition a business that returns its margins to the members through capital credits allocations and retirements,” Pierce and Gabriel write. “If an electric cooperative fails to revolve its equity and thereby develops a class of equity that is essentially permanent, it is no longer a cooperative within the meaning of this definition.”

Pierce and Gabriel cite a financial equation called the “Goodwin formula” that calculates the return on equity that a cooperative must generate in order to continue its existing rate of growth while at the same time returning capital credits to members on a 10 to 20 year cycle.

“(Cobb EMC) has no excuse for its failure to adopt and execute an equity management plan that will permit it to revolve capital credits on a reasonable cycle of 10 to 20 years while also meeting its other legitimate goals for growth and financial strength,” the attorneys write.

Yet this is debatable.

As Steele told the MDJ, each EMC is unique.

“Not only are the periods different, but the method varies from EMC to EMC,” Steele said. “I would (say) an average time may be somewhere between 20 to 25 years.”



Searching for old customers



In June 2012, Cobb EMC announced the payment of $7.1 million in capital credits to members who were customers during the years of 1957 to 1971. That money goes to eligible members based on an equation of how much electricity they used.

Cobb EMC president and CEO Chip Nelson said the average refund was $267.

As part of the announcement, the EMC mailed out 38,000 notices to the current and former Cobb EMC members who were eligible, sending those notices to their last known addresses. Thirty thousand of the 38,000 letters were returned due to bad addresses, so Cobb EMC has made other attempts to contact the 30,000 through advertising.

To date, $2.3 million of the $7.1 million has been paid out.

Steele said there is a five-year period that members have to claim the credits.

“If they are unclaimed after five years, the state law requires that the amounts be turned over to the state or donated to a qualified charity,” Steele said.

This is a sore point for two other attorneys representing the current EMC customers in the case, David Cohen and Hylton Dupree, who write in their complaint filed July 2012, “the slipshod capital rotation plan that prior EMC management has attempted to unilaterally foist upon the membership is antagonistic to both the former and current members alike. It is anemic, grossly inefficient and, if implemented, will result in the waste of millions of dollars of EMC money that will have to be donated to charity under Georgia’s unclaimed property laws.”

Because the case has been in mediation for the last few months while the company and its current and former customers attempt to reach a consensus, Pierce and Gabriel, as well as Cobb EMC attorney John Moore, said they could not discuss the matter.

“If and when there is a successful resolution to the mediation or if and when we are free to comment, we’ll be more than happy to,” Gabriel said.

Cobb EMC officials are quick to point out that the 2010 lawsuit and the $7.1 million capital credit repayment were actions that happened while the old Cobb EMC board was on its way out of office and before the new board was fully seated.

The turnover of the old Cobb EMC board is connected to the case of former Cobb EMC CEO Dwight Brown.



Dwight Brown’s downfall



There are two indictments, both under appeal, in the Brown matter. The first 31-count indictment, in which Brown was charged with violating the state’s RICO Act, theft by taking, false swearing, and conspiracy, was dismissed in Cobb Superior Court, and that dismissal was upheld by the state Court of Appeals. But the Georgia Supreme Court recently said it will review that decision. In addition, Brown was indicted a second time on 35 counts, including violating the state’s RICO Act, theft by taking, false swearing, conspiracy, influencing witnesses and threatening witnesses. Brown has appealed that indictment to the Georgia Court of Appeals.

On Monday state Rep. Karla Drenner (D-Avondale Estates) filed a bill that would increase the amount of oversight the Public Service Commission has over electric membership corporations. Specifically, HB 500 would require the PSC to review any EMC contract for the purchase of power that runs longer than five years. Drenner said HB 500 was made necessary by a high-risk, no-bid contract entered into by 11 EMCs. Led by Cobb EMC, the largest cooperative in Georgia, customers at 10 EMCs paid higher electric bills after the companies entered into no-bid agreements to join Power4Georgians. Six EMCs left the consortium after Brown was indicted on felony charges.

Georgia’s 41 EMCs provide power to approximately half of Georgia’s 9.4 million residents, with Georgia Power Co. serving the other half.

Drenner said the Public Service Commission has considerable oversight of Georgia Power, which allows it to review all rates, charges, and service rules. The PSC, however, lacks similar authority for broad oversight of the state’s EMCs, despite the comparable size of their customer base to that of Georgia Power.
Comments
(27)
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Shame, Shame, Shame
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March 22, 2013
To Realist One,

Tell the whole story please. Cobb EMC lowered the cost per kilowatt hour but raised the monthly fixed costs. That benefits those who use a lot of power, to the detriment of the little guy.
New Dog/Same Tricks
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March 21, 2013
The same day of this article Cobb EMC ran an ad claiming to be the #8 rated EMC in the state (of 41 EMCs), and that information is true......in an alphabetical listing of Georgia EMCs, right between Coastal Electric Cooperative and Colquitt EMC. In looking at power rates however, Cobb EMC rated #9 for 500kWh, #8 for 1000kWh, #11 for 1500kWh, and #12 for 2000kWh. By my math that averages to a #10 overall ranking. Outright lie? Honest Mistake? Stretching the Truth?
Attorney Wannabe
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March 20, 2013
Cobb EMC litigation = cash cow.
dmkoch
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March 20, 2013
This story continues to be a "Bad Comedy" at the expense of Cobb EMC members.

When are the management clowns going to do something "Big" for Cobb EMC members to believe we are finally on the right track?
Shame, Shame, Shame
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March 20, 2013
Nelson and the new Board are not only dragging their feet on the forensic audit but now also customer/member credits and using the money that could be returned to members to bail out Brown's development buddy Jacoby on his solar plant near Augusta. Cobb is paying nearly three times the going rate for power but since the plant is near Augusta, Cobb EMC won't be really delivering the green power to EMC Members, nor will we be getting any environmental benefits from reduced fossil fuel generation in our area.

The punch bowl never seems to run dry for the insiders at Cobb EMC.

Informed EMC member
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March 20, 2013
Still Wondering Why: You are mistaken. Check out the rate list on the Public Service Commission website. I was pleased to find Cobb EMC's rates are lower than Ga Power.
another anonymous
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March 20, 2013
The biggest winner in this will be the attorneys for the plantiff. Millions and millions of member dollars will line their pockets.
Agreed!
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March 20, 2013
You are right. The new board promised to start paying back credits and I think they would do so if these lawsuits weren't in the way. This is about attorneys making money.
Still Wondering Why
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March 19, 2013
Cobb EMC is a non-profit customer owned co op yet

its residential rates are much higher than those of Georgia Power Company, an investor owned corporation. Why?
Realist One
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March 20, 2013
@Still Wondering Why: Obviously you have not visited the PSC website in years. Cobb EMC is now consistantly less expensive than Georgia Power in all catagories. I'm still wondering why you make such uneducated statements.
Still Wondering
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March 20, 2013
Realist: Please recheck your facts! You are so very wrong. The rate schedules of both providers

are available on the internet.
Realist One
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March 21, 2013
@Still Wondering: Cite your source as I did earlier. Again you are just spouting off old information from the Dwight Brown days. Did you know that the new board reduced rates this year? Did you know that the Georgia Public Service Commission tracks and compares rates between all electric service providers in the state? Did you know that Cobb EMC now has the 8th lowest rates when compared to the other 42 EMCs in the state of Georgia and that Cobb EMC is considerbly less expensive than Georgia Power. I suppose not since you obviously like to continue on making uneducated statements. All of this information is available for anyone to review on the Public Service Commission website.
Darth Bummer
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March 19, 2013
I must admit that my faith in the new Cobb EMC/Energy board has been shaken. The new board members have not done a stellar job of bringing peace to EMC membership.
my attorney
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March 20, 2013
An attorney friend tells me the new board is stuck. They apparently have to deal with this lawsuit before they can refund more money to members.

In other words, we are stuck while outside attorneys try to take millions of dollars from us, claiming its to help us get money we would get back anyway.
dmkoch
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March 19, 2013
Mr. Nelson & Steele learned well from Dwight Brown. We are getting the same excuses & denials from the same group of managers under Mr. Brown.

The Cobb EMC culture is broken & has not worked for coop members for years

The Board of Directors needs to clean house now. It should not be this hard to be honest & build a trust with coop members.
Shaken
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March 19, 2013
I am now convinced that the only way that the Board of Directors can clean house is for them

to resign.
Cobb EMC Member
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March 19, 2013
Thank goodness, a real investigative reporter finally assigned to the Cobb EMC watch - the real story has gone "unprinted" for far too long !
OH YEA
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March 19, 2013
Wonder when the the new DA will dismiss Browns indictments listed above.
Pat H
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March 19, 2013
Mr. Steele, as Chief Financial Officer you state that the average time for EMC refunds is 20 to 25 years. The last refund was in 1971, yet it takes a lawsuit and money wasted on lawyers to defend the EMC when they have not refunded EMC owners for the last 42 years. It is time for you to resign because you are self-serving instead of understanding that you work for us, the owners.

Mr. Nelson, please start the search for your replacement as you promised when you took leadership. To have more than 7 million in assets in a time of economic hardship for most of the owners of EMC is unconscionable. There is too much temptation for the officers, board members and employees of Cobb EMC to come up with schemes to self-enrich as they have done in the past when a large slush fund exists on the books.

Regulation by the PSC can only bring lower rates and better management.

Has the forensic audit been initiated?
Disgruntled One
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March 19, 2013
The sham of the "attempts" by EMC to reach "former members" is an atrocity. When there are easily identifiable members, such as Cobb County BOE & Fire Departments on the list...you know they have to know how to reach them. Also Kennesaw Mt. National Battlefield...which is just up the road from EMC. They don't REALLY want to turn loose of the money. I've called EVERYONE I know who is on the list. Finally satisfied that our schools & County Commissions got their money. Stop playing games EMC!!
Katherine Helms Cumm
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March 19, 2013
There were 10 EMCs in the original group supporting Power4Georgians and Plant Washington. Now there are only four (4) remaining.

Cobb EMC and its subsidiary, Patula EMC, left the group in January 2012. Subsequently the source of the majority of the funding left with Cobb EMC.
East Cobber
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March 19, 2013
The ghost of Dwight Brown still haunts the members of Cobb EMC. I wonder if the employees who supported Dwight still think he walks on water. Thanks to Dwight and those employees, Cobb EMC will probably now be regulated by the PSC. More regulation always means more money and guess who has to pay. The COBB EMC BILL PAYERS. Thanks Dwight and the Cobb EMC Employees!
an employee
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March 19, 2013
Not all were followers, east cobb snob. Maybe you should try talking to the real employees.
honest one
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March 20, 2013
to "an employee"

Then why didn't y'all speak up?
Another employee
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March 21, 2013
@Honest One

Because like you we need jobs to provide for our families.
to@another employee
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March 21, 2013
It is much harder to be principled. When Dwight Brown was running off with our money, there were plenty of honest jobs, but you chose to stay there.

You kept your mouth shut because you are most likely overcompensated for the job you do and you are unprincipled without integrity.

Sure glad you are still on our payroll.
honest one
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March 22, 2013
To "Another Employee" and "to@another employee"

You're both correct.

A lot of good, loyal, honest employees weren't in the know such as linemen, facility maintenance, lower level staff, etc.

Loyal, white collar employees in the know that had the courage to speak up at Cobb EMC, Cobb Energy or any of the affiliates such as P4G or ECG, were gotten rid of with one tactic or another. Most, if not all of these loyal, competent, honest folk have moved on to much better places.

However, an awful lot of those in the know kept their mouths shut because they knew, given their low level of competency, that they were overpaid in return for their unwavering loyalty.

The sad result is that many good,loyal and honest people left and a lot of overcompensated, mediocre sheep stayed, making the EMC, and its affiliates, worse off.

Sad story.

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